Bubble Meter is a national housing bubble blog dedicated to tracking the continuing decline of the housing bubble throughout the USA. It is a long and slow decline. Housing prices were simply unsustainable. National housing bubble coverage. Please join in the discussion.

Sunday, May 07, 2006

New Home Cancellations Significantly Up over 2005

As the housing market cools, builders are reporting that more people are walking away from contracts and from tens of thousands of dollars in deposits.

Wall Street analysts say the Washington market is among those seeing the highest percentages of buyers abandoning ship -- more than double last year's rate, according to one research firm, and perhaps as high as one in three new-home buyers in some places. And nationally, some big builders are beginning to report cancellation rates upward of 25 percent.

In the Washington, DC metro area there is this information to report:

Hanley Wood Market Intelligence, a home-building research firm, this week said that its latest survey of builders showed that the can cellation rate for the Washington area in March more than doubled from a year earlier, jumping to 12.7 percent from 5.1 percent.

The survey shows the cancellation rate locally highest in Fairfax County, at 30.9 percent, compared with 0.8 percent a year ago.

As expected "People who are buying for investments rather than residences are the most likely to bail out, experts said. They reason that it would be better to lose a deposit than to go ahead with an investment that could lose value, particularly if builders are cutting prices in the same or nearby projects."

Indeed some specuvestors ( investors who are really speculators) are losing huge amounts of money in the housing market.

Despite the pain of giving up that much money, some buyers are canceling to cut their losses because builders are pricing the same houses for so much less, Alexandria lawyer James C. "Beau" Brincefield Jr. said.

"I have seen people literally walk away from $125,000 deposits rather than go forward with the closing because the value of a house identical to their own was being sold by the builder for $100,000 less," said Brincefield, who is preparing litigation for buyers who want to sue builders to get their deposits back.

Finally, "Credit Suisse First Boston stock analyst Ivy Zelman this week said big builders nationally are reporting cancellation percentage rates in the mid- to high 20s, compared with the mid- to high teens of a year ago. Executives from Pulte Homes, for example, said in an April 27 conference call with analysts that cancellations reached 27 percent in the most recent quarter, vs. 18 percent a year ago"

"Hanley Wood's survey showed the Sacramento area with the highest cancellation rate, 28 percent, up from 2.6 percent in March 2005. Rates in Las Vegas, Denver, Phoenix and Orange County, Calif., also were higher than those in the Washington area."

What interests me is whether any of these contracts are enforceable beyond forfeiture of the deposit -- extending to any loss the builder would suffer. I suppose that would be pretty difficult, since who's to prove that the price the builder took to unload the place was the most they could get. I also wonder if builders aren't tightening up their deposit requirements now, shortening the number of days before it is non-refundable (assuming local laws don't interfere with free choice in the matter).

All of this pushes me farther and farther back from the day I want to buy back in.

Good work Mr. Bubblemeter!This really should convince anyone that a bubble burst really exsist.

Walking away from hugh desposits to avoid bigger losses..it's good to see these homebuyers come to their senses.

Are builders going to come to their senses or are they still going to dazzle us with their BS. My guess is when the National Realators Assoc. acknowledges a bubble burst maybe the builders will abdandon the BS approach.